Rethinking of drafting terms and conditions of private corporate bonds in Vietnam

Amidst the turmoil in Vietnamese bond market, which has not showed any sight of improvement, the Government continues to change the legal framework around Vietnamese corporate bonds. The latest regulations are the regulations by the Vietnam Security Depository Corporation (VSDC) on registration, depository, settlement and implement of rights for private corporate bond (VSD Private Bond Regulations). In light of the new VSD Private Bond Regulations and the difficulties for current bond holders to enforce their rights under the terms and conditions of bonds issued earlier (standard terms), it is high time that the terms and conditions of private corporate bonds to be drafted differently to give better protection to bond holders. We discuss below some of the improvements which could be included in the terms and conditions of a new private corporate bond:

·         Individual vs collective rights: under standard terms, most of the rights of bondholders are exercised collectively through the meeting of bondholders and/or the various agents (e.g., bondholders representative, security agents, or registration agents). While collective exercise of rights may be convenient for the issuer, collective exercise of rights could make it difficult for individual or small bondholders to protect their rights since they depend on decision of the meeting of bondholders and actions of the relevant agents. Therefore, we think that except for some mandatory rights, the terms of private corporate bond should allow a bondholder to exercise its right individually as much as possible. Under Decree 153/2020, change to the bond terms, approval of remedial plan regarding a breach by the bond issuer, or change to the bondholders’ representative require approval by the bondholders holding at least 65% of the outstanding bonds.

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Written by Nguyen Quang Vu On In ,

Stricter conditions for foreign loans by Vietnamese companies being non-credit institutions

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In June 2023, the State Bank of Vietnam (SBV) issued Circular 8/2023 to replace Circular 12/2014 which prescribes conditions for Vietnamese borrowers to borrow foreign loans (i.e., loans provided by an offshore lender) without a Government guarantee. Similar to Circular 12/2014, Circular 8/2023 has separate borrowing conditions for borrowers being credit institutions and borrowers being companies incorporated in Vietnam which are not credit institutions (Vietnamese Companies). In this post, we discuss the borrowing conditions for a Vietnamese Company. This post in written by Nguyen Hoang Duy and Nguyen Quang Vu.

The key highlights of Circular 8/2023 include:

  • offshore short-term loan borrowing will likely be more difficult since short-term loans are now only permitted for limited purposes (see 3.6) and (1) a Short-term Borrowing List needs to be prepared (see 5.1.2);

  • it is important to determine the purpose of an offshore loan to be for an investment project, a business and production plan, other projects, or for refinancing existing offshore loans; and

  • significant more paperwork is required for a medium- and long-term loans (see 5.1.1). The paperwork is mostly to evidence the purpose of the offshore loans.

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Written by Nguyen Quang Vu On In

Significant Amendments Of Circular 39 On Lending Activities In Vietnam

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On 28 June 2023, the State Bank of Vietnam (SBV) issued Circular 6 (Circular 6/2023) to amend Circular 39/2016 on lending activities of credit institutions (CIs) and foreign bank branches (FBBs). Circular 6/2023 will take effect from 1 September 2023.

Circular 6/2023 introduces stricter control over lending activities conducted by CIs and FBBs. In this post, we will summarize some of the key points of Circular 6/2023.

Additional prohibited lending purposes

Circular 6 provides for certain new scenarios where CIs and FBBs are prohibited from providing loans. These cases include:

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Written by Nguyen Quang Vu On In

Should Foreign Investors Contribute Capital To Foreign Direct Investment (FDI) Enterprise In An Amount Denominated In A Foreign Currency Or In VND?

Introduction

An FDI enterprise is an enterprise which is established by foreign investors with or without domestic investors. It is a common practice for foreign investors to contribute capital to an FDI enterprise in a foreign currency, such as USD, with the amount denominated in that particular foreign currency recorded in the FDI enterprise's Enterprise Registration Certificate (ERC) and/or Investment Registration Certificate (IRC). The difference in exchange rate between the date of the IRC and the date of actual contribution often leads to a disparity between the VND amount converted from the contributed capital in foreign currency and the VND amount recorded in the IRC. Different

In such cases, it remains uncertain whether the foreign investors will be considered to have fully fulfilled their capital contribution because it is not clear which amount should be used to determine if the FDI enterprise's charter capital has been fully contributed: (i) the VND amount after being converted from the foreign currency, or (ii) the actual contributed amount in foreign currency (see analysis below). Different authorities may have different views on this issue.

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Written by Nguyen Quang Vu On In ,